WASHINGTON – A judge who questioned whether Barclays Bank PLC was getting off too easily nonetheless approved a deal Wednesday that will likely enable the financial institution to avoid prosecution on allegations that it engaged in $500 million in illegal transactions with banks in Cuba, Iran, Libya, Sudan and Myanmar for more than a decade.
Under the arrangement with the Justice Department, Barclays will pay $298 million — half of it to the United States and the rest under an agreement with the Manhattan district attorney's office in New York.
In exchange for the London-based bank's ongoing cooperation, the two criminal charges the bank faces will be deferred and ultimately dropped as long as the financial institution demonstrates that it is complying with U.S. laws.
U.S. District Judge Emmet Sullivan expressed concern that no one working at the bank was charged criminally and that the $298 million would come out of the pockets of Barclays' shareholders.
It looks like the bank is "getting a free ride here; that is what the average person probably concludes," Sullivan said.
Justice Department attorney Kevin Gerrity said the deferred prosecution agreement represents a fair and appropriate resolution of the case, balancing the serious nature of the criminal charges and "doing the right thing."
Gerrity said "we looked very hard" to find individuals at the bank who engaged in the alleged criminal conduct.
"There was no paper trail?" Sullivan said. "Senior management has to know who is responsible. ... Someone has to mastermind this."
Gerrity said the bank spent $250 million conducting an internal investigation of the matter.
"They spent $250 million and didn't find anything? That's just shocking," the judge said.
"We did not find anyone" who engaged in criminal conduct, Gerrity said.
Gerrity said senior management did not know of the misconduct until 2006, and disclosed it to the Justice Department. Low-level employees carried out the transactions and it became a question of whether they lacked criminal intent, said David Braff, an attorney representing the bank.
Sullivan declared that "I am not trying to micromanage" the Justice Department, but the judge suggested that prosecuting the bank might have brought pressure to bear in terms of uncovering who was responsible for the alleged criminal conduct.
The judge said at the outset of the court proceeding that he was unfamiliar with deferred prosecution agreements like the one he was being asked to approve. His deep skepticism of the deal turned to acceptance over the course of the hearing, which lasted over an hour.
Assistant Attorney General Lanny Breuer, head of the Justice Department's criminal division, said Barclays' conduct has resulted in a serious sanction including a public admission of its illegal acts.
"When corporations self-disclose their criminal wrongdoing to us, as Barclays did, they will not get a pass, but we will take their disclosure, cooperation and remedial efforts into consideration," Breuer said in a statement.
The Board of Governors of the Federal Reserve ordered Barclays to come up with a program within 90 days to ensure the bank's global compliance with U.S. regulations of the Treasury Department's Office of Foreign Assets Control.
The Justice Department uses deferred prosecution agreements as an in-between option to obtaining the conviction of a corporation or declining to prosecute altogether.
The bank was accused of violating the Trading with the Enemy Act and the International Emergency Economic Powers Act.
According to court papers in the case, Barclays concealed the transactions that it carried out with banks in the countries, which were under U.S. economic sanctions.
The papers stated that as early as November 1987, banks in the sanctioned countries directed Barclays not to mention their names on payment messages sent to the United States. The papers also said that Barclays' operating procedures educated employees on how to bypass filters designed to flag incoming payment messages involving sanctioned banks.